YES-secure says it will outpace Zopa by incorporating social networking into the process, allowing lenders and borrowers to forge relationships with each other in a similar way as Facebook and LinkedIn. Members can invite friends and family members to join their list of 'network connections' on the site where they can then lend securely to each other and interact via a chat facility and message forum.

YES-secure.com founder, Dr Chandra Patni says: "By adding the social element into borrowing and lending we are providing a network which is open and enables people to actually get to know who they are lending to, or borrowing from. It may be the case that you want to lend to a friend or family member, for example a student who needs a loan. By using the site you can offer them a better rate than the banks and you can formalise the deal as a personal contract between friends."

YES-secure.com will enable lenders to lend as little as £10 to £25,000, with the maximum lending to one person being £500 to reduce the risk of borrower defaults. However, if the borrower is on the lender's list of network connections, the lender can lend higher amounts. The company says it expects rates will be typically between 7% and 15%..

Consumers signing up to the site will be credit checked using CallCredit and will also be given a reliability rating so that lenders are aware of the individual borrower's creditworthiness. Borrowing from practices used to rate sellers on eBay, the larger a user's network, the higher the individual will score on a Yes-Secure 1-5 star reliability index.

The site will be fee-free for the first three months of live operation, after which borrowers will pay £80 per loan arrangement and lenders charged 0.9% of the amount leant. Both fees will be included in the loan APR.

Fees at Zopa are currently £124.50 for borrowers and 1% for lenders.

Zopa, which currently claims some 400,000 members, welcomed the competition as "a good sign that we had proven the concept to work".